How money explains everything

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Agencies

PublishedWednesday, April 02, 2008

(SUPPLIED)

Supply, demand and market forces are not just academic buzzwords – they’re all around us, influencing everything. Robert H Frank, an Ivy League professor, explains in his book, The Economic Naturalist, how cold, hard cash really does make our world go round.

Although many consider economics an arcane and incomprehensible subject, its basic principles are simple and full of common sense. Here are a few examples:

Why do women endure the discomfort of high heels? High heels are uncomfortable and make walking more difficult. Prolonged use can injure the feet, knees and back. Why do women keep wearing them?

Height, after all, is a relative phenomenon. It may be advantageous to be several inches taller than others, or at least not to be several inches shorter. But when all wear shoes that make them taller, the relative height distribution is unaffected, so no one appears taller than if all had worn flat heels. If women could decide collectively what kind of shoes to wear, all might agree to forgo wearing high heels. But because any individual can gain advantage by wearing them, such an agreement might be hard to maintain.

Why is milk sold in rectangular containers, while soft drinks are sold in round ones? Virtually all soft drinks containers are cylindrical. Milk containers are almost always rectangular. Rectangular containers use shelf space more economically than cylindrical ones. So why do soft drinks producers choose cylindrical containers?

In the case of aluminium containers, one reason is the cylindrical shape is better able to withstand the pressure that can build up with carbonated drinks. Another possibility is because soft drinks are often consumed directly from the container, the extra cost of storing cylindrical containers is justified because they fit comfortably in the hand. The hand-friendliness of the container is less of an issue for milk, which is typically not consumed directly from the container.

Why are petrol caps on the driver’s side of some cars but on the passenger’s side of others? One of the most frustrating experiences of driving a hire car is to pull up at a fuel pump as you would when driving your own car, only to discover that the fuel tank is located on the other side. Car manufacturers could eliminate this difficulty simply by putting petrol caps always on the same side of the car. Why don’t they?

In countries where motorists drive on the right side of the road, such as the US, it is easier to turn right than to turn left across oncoming traffic. A majority of drivers will thus buy fuel at stations they can enter by turning right. Suppose fuel tanks were always on the driver’s side of the car. Drivers would then have to park on the right side of an open pump in order to fill their tanks. During busy times, all spots on the right sides of pumps would be filled even while most spots on the left sides of pumps remained empty.

Putting petrol caps on different sides of different cars means that some cars can access pumps from the left. And this makes it less likely that drivers will have to queue for fuel. That benefit greatly outweighs the cost of occasionally pulling up to the wrong side of the pump in a hire car.

Why are DVDs sold in much larger packages than CDs, even though the two types of disc are exactly the same size?

CDs come in cases that are 148mm wide and 125mm high. By contrast, DVDs are sold in cases that are 135mm wide and 191mm high. Prior to the appearance of digital CDs, most music was sold on vinyl discs, which were packaged in close-fitting sleeves that measured 302mm square. The racks on which vinyl discs were displayed were just wide enough, in other words, to accommodate two rows of CD cases with a divider between them.

Making the CD cases a little less than half as wide as the album sleeves they were replacing thus enabled retailers to avoid the substantial costs of replacing their storage and display racks.

Similar considerations seem to have driven the decision regarding DVD packaging. Before DVDs became popular, most film rental stores carried videotapes in the VHS format, which were packaged in form-fitting boxes that measured 135mm wide and 191mm high.

These videos were typically displayed side by side with their spines out. Making DVD cases the same height enabled stores to display new DVD stocks on existing shelves. Making the DVD package the same height as the VHS package also made switching to DVDs more attractive for consumers, since they could store their new DVDs on the same shelves they used for their VHS tapes.

Why do women’s clothes always button from the left, while men's clothes always button from the right? Approximately 90 per cent of the world’s population – male and female – is right-handed, and it is somewhat easier for right-handers to button shirts from the right. So why do women’s garments button from the left?

This is an example in which history seems to matter. When buttons first appeared in the 17th century, they were seen only on garments of the wealthy. At that time it was the custom for men to dress themselves and for women to be dressed by servants.

Having women’s shirts button from the left thus made things easier for the mostly right-handed servants who dressed them. Having men’s shirts button from the right made sense not only because most men dressed themselves, but also because a sword drawn from the left hip with the right hand would be less likely to become caught in the shirt.In economics, a norm once established resists change. At a time when women’s shirts buttoned from the left, it would have been risky for any single manufacturer to offer women’s shirts that buttoned from the right.

Why are whales in danger of extinction, but not chickens?

Seldom does a year pass without a street demonstration by environmental activists decrying international hunting that threatens extinction for many large marine mammal species. Yet there has never been a demonstration to save chickens.Whale populations have been dwindling because no one owns whales. They swim in international waters and several nations have refused to respect the international treaties that have attempted to protect them.

Japanese and Norwegian whalers understand perfectly well that their current practices threaten the survival of whales and hence their own livelihood. But each whaler also knows that any whale he does not harvest will be taken by someone else. Thus no whaler stands to gain from self-restraint.

By contrast, most chickens are owned. If chicken farming were your livelihood, you would have strong incentives to balance the number of birds you send to market and the number of new chicks you acquire. People enjoy secure property rights in chickens but not in whales, and that explains why the former are secure and the latter endangered.

Why does an accident on the northbound side of a motorway cause a traffic jam on the southbound side? When an accident occurs on the northbound side of a motorway, the damaged cars, ambulances and police cars often make the northbound side impassable for hours. But why should it cause traffic jams on the southbound side?

As they approach the scene of the accident, southbound drivers make a simple cost-benefit calculation. The cost of slowing down to take a closer look at the accident scene is that they will be delayed by several seconds. The benefit is, by doing so they will satisfy their curiosity. The benefit seems to exceed the cost for most motorists.

What most motorists do not consider is that one’s decision to slow down for a few seconds creates several seconds of delay for hundreds of motorists behind. So the aggregate cost of getting a better look at the accident might be a delay of more than an hour per motorist. If drivers could take a vote on the matter, they would almost surely elect not to slow down.

Why don’t more people wear Velcro-fastening shoes?

Learning to tie one’s shoelaces was a childhood rite of passage long before Swiss inventor George de Mestral obtained a patent for Velcro in 1955. Ever since then, Velcro has been replacing zips, hooks, laces and other traditional fastening methods in a host of applications. As a method of fastening shoes, Velcro offers clear advantages over laces. Laces can become untied, for example, causing people to trip and fall. And fastening shoes with Velcro is much quicker and easier than tying a pair of laces. However, the proportion of adults who wear shoes with Velcro fasteners remains small.

Velcro’s popularity for children’s shoes is explained by the fact that many of the youngest children have not yet learnt how to tie shoelaces. Shoes with Velcro fasteners afford these children – and their parents – a welcome measure of independence. And among the elderly, Velcro is popular for medical reasons. Some older people have difficulty bending down to tie their shoe laces, for example, while others have difficulty because of arthritic fingers.

Therefore, the upshot is that Velcro fasteners on footwear are associated in the public mind with incompetence and fragility.

Why does a light come on when you open the refrigerator, but not when you open the freezer?

In both compartments of the appliance, the cost of installing a light that comes on automatically when you open the door is essentially the same. On the benefit side, having a light inside either compartment makes it easier to find things.Since most people open the refrigerator more often than the freezer, the benefit of having a light in the refrigerator is larger. So with the cost of adding a light the same in both cases, the cost-benefit test for whether to add a light is more likely to be satisfied for the refrigerator than for the freezer.

However, in general, the benefit of such features, as measured by what people are willing to pay for them, tends to rise as income increases. (The Independent)